GE, Hitachi form two nuclear-plant ventures

BUSINESS DIGEST

November 14, 2006|By Bloomberg News

NEW YORK -- General Electric Co. and Tokyo-based Hitachi Ltd. said yesterday that they will combine their nuclear-plant businesses into two ventures in the United States and Japan to better compete with bigger rivals Toshiba Corp. and France's Areva Group.

GE will receive a net payment of "several hundred million" dollars once the transaction is closed, John Krenicki, head of GE Energy, told reporters yesterday. GE will keep 60 percent of its nuclear business and get 20 percent of Hitachi's Japanese segment, Hitachi President Kazuo Furukawa and Krenicki said.

The combination gives both companies more technology and access to licenses globally to compete with Toshiba, which bought Westinghouse Electric Co., the world's biggest designer of nuclear reactors, for $5.4 billion this year. Hitachi has used GE's licenses to build plants since 1967 and forecast 100 new reactors worldwide in the next 20 years as energy demand grows.

"We'll just have a much better economic outcome for our customers and ourselves if we're closer aligned and take advantage of both experiences as this nuclear renaissance happens," Krenicki said.

The GE-led venture, with about 1,500 employees and based in Wilmington, N.C., will bid for projects outside Japan. The Hitachi-led venture will focus on Japan and have about 2,000 employees, the executives said.

The companies, which together this year bid for Westinghouse and lost to Toshiba, plan to sign a contract for the alliance in the first half of next year. They have been selling nuclear fuels through a six-year-old alliance, Krenicki said.

GE is the world's biggest maker of power-plant equipment and services. The alliance helps GE get a foothold on service sales from new plants more quickly as Hitachi is building more plants in Japan "than in the U.S. or than in Europe for that matter," Krenicki said.

The companies, which make so-called boiling water reactors, also will look to develop pressurized reactor technology like those made by Westinghouse and Areva, Krenicki said.

Revenue from Hitachi's nuclear business was 160 billion yen ($1.36 billion) in the 12 months that ended March 31, Furukawa said. GE's nuclear business has more than $1 billion in annual sales, Krenicki said. Growth will be driven by services and depend on the pace of new construction, he said.

Hitachi reported its largest quarterly loss in 4 1/2 years last month because of costs for turbine failures that caused stoppages at two nuclear power plants this year.

The GE Energy unit, which includes the nuclear business and is based in Atlanta, provided about $16.5 billion of the parent's $149.7 billion in sales last year.

GE shares rose 19 cents to close at $35.36 yesterday on the New York Stock Exchange.